June 25, 2024
Over the last 10 years, while U.S. GDP has grown 62% and instant ticket sales have increased by 72%, the lottery player base has remained fairly consistent, with monthly instant ticket players comprising around 30% of the population. Revenue growth has been largely driven by higher-priced ticket strategies, with 30 of the 49 North American lotteries now offering tickets at $50 and above. This revenue model relies on a static player base, creating a challenge for lotteries: how to responsibly and successfully grow revenue with a broader player base.
While digital products offer new ways to grow revenue, retail remains a central driver of lottery sales. There is no doubt that COVID-19 catapulted retailers into uncharted territories, forcing them to quickly pivot and adapt amid uncertain times. It also emphasized the value of lottery retail partners to the overall success of lottery. As we get further away from the pandemic years, lotteries need to consider the persistent headwinds, the encouraging tailwinds, and emerging technologies that shape the retail environment today, as they explore and implement solutions that will support lottery retailers through an evolving market.
Persistent Headwinds – Trends Challenging Purchasing Behavior
A recent online survey in Michigan shows that 54% of scratch ticket sales are impulse-based. Retailers, however, are facing trends that contribute to downward pressure on spontaneous instant ticket sales. For example:
E-commerce and buy-online-pickup-in-store (BOPIS) continue to grow. The United States is the largest BOPIS market in the world, with about 10% of all online sales involving pick-up. Now, nearly one-third of consumers who use online shopping use BOPIS, an increase of about 33% over last year.
Still finding its place in retail is self-checkout, which remains a popular choice for many shoppers and reduces the opportunity for impulse purchasing. New formats, like Amazon GO walk-out stores and their Dash Cart technology, continue to evolve and change the transaction processes for instant tickets. Circle K, a key lottery retailer, is launching thousands of AI-powered self checkout systems that do not utilize barcode technology over the next few years.
When it comes to refueling at gas stations, our research shows that light and lapsed scratch players – who are prone to impulse purchases - are more likely to use pay-at-the pump or mobile apps.
Convenience stores, which account for roughly 70% of instant ticket sales, continue to dominate the retail landscape with approximately 150,000 in the U.S., while grocery and dollar stores number 45,000 and 40,000 locations, respectively. C-stores have faced their own challenges over the last couple of years, which have limited new location growth and led to a decline in the size of the lottery retailer network overall.
Encouraging Tailwinds – Some Good News on the Horizon
While challenges remain, positive signs and exciting opportunities are emerging in the retail environment. C-stores that have weathered the storm are thriving, driving increased sales per retailer over time. In fact, Convenience Store News reports that convenience store traffic has been up by more than 60% over the last four and half years. This has been attributed to increased inflationary pressure, which has driven people to explore lower-cost food options; C-stores have made enhancements to their models in response, making investments in store style, size, and offerings, to attract more price-conscious customers, allowing them to compete with traditional retailers. A good example of the shift in convenience stores is Maverik, now with 380 locations in 12 Western states. With a core value of “Creating the coolest convenience-experience on the planet,” stores are designed to make customers feel as if they're "walking into the great outdoors,” with fresh food options prepared in-store.
On the gas front, consumer behavior seems to be changing. Recent NACS research shows a rise in customers entering the store after fueling, up to 58% in 2024 compared to 44% in 2020.
The trend to offer a variety of check-out options to meet the unique needs and wants of different consumers has emerged recently, which could present new opportunities for lottery product placement. For example, some retailers have introduced "slow lanes" catering to elderly and those customers who value social interaction over speed of service. For customers who prioritize convenience, self-checkout continues to evolve, as retailers learn how to balance the convenience factor with labor and losses.
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Adapting to Changes
To thrive in an evolving environment, lotteries and retailers need solutions that put instant tickets in the path of purchase in critical retail channels, like C-stores, as well as expanding to other channels, such as dollar stores and grocery by reducing friction in the purchasing process. Through our subsidiary Schafer Retail Solutions +, Pollard Banknote is committed to deploying new merchandising solutions to respond to these unique challenges.
For example, our easyVEND™ solution is an integrated in-lane dispenser that allows the player to purchase tickets along with their other goods, creating a frictionless transaction and dispensing experience that is vital for any retailer. Select 4™ is a compact, four-game instant ticket vending machine designed for social spaces such as bars and sports lounges, providing a viable solution to open new retail channels, especially those ample foot traffic, like gyms and coffee shops.
Visibility within retail locations is critical, especially since shelf and counter space is so crowded. Installing eye-catching merchandisers that cut through the clutter, like our Digital Menu Board (DMB), encourages players to make spontaneous purchases by making them highly visible. New solutions for instant ticket dispensers, such as HALO, our lighted enhancement kit that mounts on existing dispensers, demonstrates that light and color attract the player and stimulate that important impulse purchase in a crowded retail space.
As the retail environment continues to change, lotteries and their retailers will need to implement a range of solutions that encourage purchase behavior and reduce transaction friction in a diverse and ever-evolving retail space that includes convenience stores, gas stations, grocery, and other multi-lane stores.
